Q3 2019 Earnings Call
Greetings and welcome to the northern oil and gas third quarter 2019 conference call.
Sorry, just concerned in listen only mode.
Sure that's recession will follow the formal presentation.
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This conference is being recorded it's now my pleasure to introduce your host branded Elliott. Please go ahead Sir.
Right. Thanks, Kevin Good morning, everyone. We're happy to walk me to Northern's third quarter 2019 earnings call before we get to the results. Let me cover our Safe Harbor language. Please be advised that our remarks today and putting the answers to your questions may include forward looking statements within the meaning of the private Securities Litigation Reform Act.
Forward looking statements are subject to risks and uncertainties that could cause actual results to be materially different from the expectations contemplated by these forward looking statements.
Those risks include among others.
Matters that we have described in our earnings release as well as in our filings with the FCC, including our annual report on Form 10-K , and our quarterly reports on Form 10-Q , we disclaim any obligation to update these forward looking statements. During this conference call. We may discuss certain non-GAAP financial measures, including adjusted net income and adjusted EBITDA.
Reconciliations of these measures to the closest GAAP measure can be found in the earnings release that we issued this morning.
All right during our call today I will make a few summary comments before turning the call over to nickel Grady for his remarks.
Northern's Chairman Brahma Crotty is going to comment on the ongoing consent solicitation, our exchange and strategy moving forward.
And finally, well open it up for the Q and a portion of the call.
In addition to those I mentioned, we also have chat Allen, our chief Accounting officer, Adam barrel them, our SVP of land and Tim Evans, our VP of engineering in the room with us as well.
Northern had a solid quarter, what production up 17% sequentially and 53% year over year, that's 3.75 million barrels oil equivalent.
Averaging 40786 barrels oil equivalent per day.
This production is despite continued curtailments and shut ins that we have estimated reduced our production by approximately 4500 barrels oil equivalent per day during the quarter.
This was almost 2000 Boe per day worse than our initial forecast.
Offsetting those headwinds has been the success, we have had over the last six to 12 months in our ground game acquisitions.
These acquisitions have helped to offset the curtailed production at some of the net well additions from prior ground game acquisitions have outperformed both our estimates that initial production and have come on line slightly ahead of our initial plan.
Also the van Bokkelen acquisition that we closed early in the third quarter has been slightly outperforming our initial forecast.
Our hedging program continued to perform as design and help to protect us from recent volatility in the oil markets.
Natural gas and NGL prices were particularly weak during the quarter.
As we mentioned last quarter, we think infrastructure expansions planned for late this year and into 2020, well bring welcome relief both on the oil volumes, we continue to see affected by the constraints, but also in the ability to move and get better pricing on the natural gas and NGL side.
Lease operating expenses were up 5% sequentially the $8.62 per BOE, Inc.
Some of this increase was expected as we had indicated the been Bakken assets do have a slightly higher ela, we than our previous corporate average, but there was also some effect negative effects on fixed cost use a curtailments and shot and net net we still expect our guidance of $8 to $8.50 per Boe.
For the year to be a reasonable expectation.
Again this quarter, we tried to focus our capital expenditures on the highest return opportunities.
We can send it to about 80 gross wells during the quarter and non consented 60.
The wells, we nonconsent it did not meet our investment hurdles, mainly as a result of one operator targeting a three forks formation that did not meet our hurdle rate.
In this instance, we were able to consent to the middle Bakken wells and retain our optionality in future well proposals each formation.
Our proactive capital allocation decisions should augment our returns and cash flows moving forward.
The positive cash flow, we have generated after organic drilling and development capital expenditures continues to be focused on generating the best possible returns and importantly focused on increasing our cash flow as we look to the culmination of this next step in our process to position Northern began returning.
Capital to shareholders and 2020.
Rob will cover this in his remarks momentarily.
Now, let me turn the car to Nick the cover some of the financial highlights and our updated guidance.
Thanks, Brandon and good morning from an <unk> [laughter] Minneapolis.
I have a few highlights to go over this quarter, starting with a quick summary on northern financial performance.
Adjusted EBITDA for the quarter was 124.4 million up sequentially from the second quarter.
This is driven by higher production, primarily from our men Bakken acquisition offsets as prior aspire mentioned, the production curtailments that and very poor realized gas prices and the carrying cost the fixed Delaware from wells that have yet to return to sales.
The fog of war in the basin driven by Curtailments has been frustrating. However, the endgame remains the same.
The significant processing capacity coming online the huge swath of wells turning to sales and improvements in NGL takeaway that should lead to improved pricing in the long run.
Gosh DNA came in at $1.15 for be OE, this quarter slightly higher than the second quarter.
Main driver was over 1.3 million in transaction expenses associated with the van Bokkelen acquisition.
Excluding these one time items January was actually lower quarter over quarter.
Oil differentials were around the midpoint of our guidance this quarter at around five and a half dollars per barrel. This is in spite of significantly narrowing Gulf coast differentials.
Well shut ins combined with a higher Halloween event Bakun drove our elouise up sequentially. The age 62 per barrel, we expect us to moderate in coming quarters of skilled issues normalize and newer wells turned to sales, we expect no changes to guidance.
Our organic DNC spend was approximately 80.1 million and we turned the total of 13.3 net wells to sales 10 of which were organic and 3.3 associated with the ground game acquisitions.
With respect to discretionary capital, we allocated approximately 32.9 million this quarter made up of 9.9 million for ground game acquisitions, and 23 million in total ground game associated development capital.
The ground game investments continue to have some impact on our production levels. This year, but we should start to see some significant impact or volume in cash flows as we close out 2019 and into early 2020.
Now to guidance.
We are leaving our fourth quarter production guidance intact based on the current levels of activity and the trajectory going into 2020 remains the same subject to winter weather of course.
For our Ela, we guidance it remains 850, despite the curtailments, keeping ela, we elevated into the third quarter.
As of now we expect modest improvements in the fourth quarter.
We're changing our tax guidance to 10% on that crude sales and seven and a half cents per mcf, he which more closely approximates the actual north Dakota tax code.
It should allow us to be more accurate in the future as the old percentages move around too much depending on the spread between gas and oil prices.
Kashi any guidance has been maintained it to a range with the high end of $1.15 per believe we may incur some cost with our recently announced consent and tender process that cannot be capitalized, but we'll make sure to call them out if it should happen.
On the hedging front, we've continued to make progress, particularly in 2021.
Differentials, we expect oil differentials to be wider in the fourth quarter as production curtailments begin to roll off in gas realizations may remain weaker than normal until the large NGL takeaway is complete in the first quarter of 2020.
On the capital front, we remain on track and we're still guiding to 30 334 organic net well additions for 2019.
We do think however, given we have seen a few net well additions come online earlier than expected we couldn't be towards the high end of the organic spend.
The ground game has remained active but we are trimming the top end of our 29 gene acquisition spending to a maximum of $40 million as we believe here in November our spending for the year is largely complete.
We are widening the ground game DMC Capex for the same reason I just mentioned with respect to the organic DNC spend we've continued to be surprised to see operators, turning wells to sale faster and in many cases accelerating development.
With investors so focused on free cash I want to make one thing clear we are generating free cash flow on an organic basis. Most important question is what are we doing with it.
The acquisitions, we have made with this cash or purposeful and driven towards building, our cash wedge and with our consent process almost complete we can now focus on harvesting of this.
With many participants scrambling to cut capital in any way shape or form we're countercyclically investing in those capital projects high return wells in process that will generate cash within a few quarters.
Given the choice between 20% to 100% risk adjusted returns versus paying down four and a half 4% to 5% bank debt. There's been an easy capital allocation decision for us until such time that we were in a position to return capital meaningfully to shareholders and that time is coming in 2020.
Given our success and robust levels of activity our ground game, particularly for wells in process is likely to slow and mainly to focus on projects for 2021 and beyond.
2020 will be a time to harvest all the success. We've had this year both in terms of debt retirement and shareholder returns.
Thanks, and let me turn it over to barometer.
Thanks, Nick last two years energy has been focused on recapitalization process, including reducing our overall debt to EBITDA.
At the same time.
We have been growing the company's free cash flow and reserves.
This has allowed energy.
To take this next step.
Which is to significantly grow our RBL.
And reach an agreement with our bondholders for the consent necessary to both get this larger RBL, but also at the start paying dividends to our shareholders.
Our plan next several years is to continue to reduce our more expensive that reduce fixed cost and preparing energy to be is strong even a $40 oil price environment.
The deal we are planning to closing the next couple of weeks will improve our readiness.
For a low oil price environment.
And in every step.
We take over the next 12 months, we will continue to move us in that direction.
We are preparing for what we like to call internally the one third doctoring.
Just how we see capital allocation for our free cash flow.
Plan over the next 12 months are too.
When one.
Further reduce our debt we couldn't we would.
Allocate approximately one third of our projected free cash flow.
Plan to.
Plan up to one third of this free cash flow for dividends and share buybacks.
Mm three use other third to take advantage of accretive acquisitions.
Additionally, we will work to find other creative ways to reduce our <unk> reduce more debt if the opportunity presents itself.
My goal is to reduce all LVD that's expense.
An interest rate closer to that about RBL.
This will allow and Archie to pay a sustainable and growing dividend.
I want to thank Energy's executive team, our board members Angelo Gordon and the rest of our bondholders.
I also want to thank our advisors Wells Fargo, RBC and the rest of the banks, which have committed to our participate in which we're committed and participated in our RBL.
It has all then it is taken all of these people to accomplish what we have gotten done over the last 60 days.
On our last earning conference call.
Hi permitted to initiate these discussions to see if we could put a win win deal together.
I'm very happy proud and grateful that we've been able.
To accomplish all this I'm excited.
To announce in the near future, where we expect to start our first regular cash dividend. My goal is to start it's evident for the first quarter, they're able in April .
I also want to thank all of our shareholders, who have been patient until we were ready to do this methodically and thoughtfully.
And with the best economic terms possible with that I will turn it back to Brandon.
It's probably and I without I will turn the call over the operator for the Q and a portion of the call. Kevin If you could please give the instructions for queuing <unk> will take those questions no absolutely will not be conducting a question answer session. If you like to be placed in the question Q. Please press star one of your telephone keypad.
Information tone will indicate your line is in the question Q you May press star to if you'd like to remove the question from the Q4 participants using speaker equipment and they'd be necessary to pick up or handset before pressing star one.
One moment, please probably poll for questions.
Our first question today is coming from Phillips Johnston from capital One Securities. Your line is now live.
Hi, guys. Thanks first questions just on the topic of maintenance Capex and PDP decline rate I think on the March call yesterday manager PDP decline rate for 19 was somewhere around 35% or so but it was expected to moderate and.
2020, plus you, obviously watching the flywheel assets as well as.
Some new ground game asset. So just wanted to get an updated estimate of the PDP decline rate going into next year and also just from the same topic about how many.
Net wells per year, and how much a annual DNC capex would be sort of required to keep production flat at your fourth quarter rate of roughly 40000 a day.
Philips as Nick the given the amount of growth, we probably will see in the next few quarters I would I would keep our decline rate probably still in that mid thirtys and that just because obviously, we have no allocating capital towards these wells in process.
And then you'd expected to moderate out.
I think that the answer on the sustaining portion is is is a little bit tricky around timing, which is that from our fourth quarter, obviously it depends on how much.
How much growth we see in the first half of next year to where you exit. So I can give you a scenario that you know certainly I would just tell you that I think internally, we would look at it and say Oh, certainly on an annual basis, we could may we could match that fourth quarter with as little as $200 million.
If you wanted to exit with some growth I think the goalposts or something like between.
200, and probably $325 million to depending on where you want to go into 2021.
But I'd also add that that what's important about that in that trajectory is about how much capital or do you want to allocate in late 2020 towards 2021 growth and if those projects meet our hurdle rates.
And so I think the answer is produced 40 445000 barrels a day next year will be yeah. We can do it with as little capital like I said is $200 million.
And if we wanted to drive a lot of growth, though would push through into 2021 that would that would had probably towards the low three hundreds.
Okay. That's that's good color, thank you and I.
I guess you mentioned the likelihood of moderating acquisition activity next year, obviously, it's early but where do you think the ground game related spending will shake out at least directionally versus the kind of you know 70 to 110 million or so this year.
Yeah. So I mean, I think that you know on the I think that if you if you use that goalpost of around $200 million in the low end.
That's probably almost all organic spend with little to no ground game, obviously, what we've seen.
And remember that's going to that's going to spool up all that organically what kind of include all the capital that's already been allocated this year towards those projects. So.
The question will be how much money do you want to spend about either drive additional growth.
And I think we're not quite there yet in terms of how much we want to do that I'm asking we want to watch the strip and 2021 and make sure that we're going to earn adequate returns for any capital I mean, we don't really targeted growth rate, we target a return of capital employed and so.
You know it really comes down to Jim and Adam in our team here of seeing whether those projects meet our hurdle rates, but I would say that Oh, let's call. It 200 225 million for that sort of base well well planned towards what I discussed.
And then something between 50 and $75 million, though would be that total ground game spending when I say that when I say 200 to 325 I'm, including at all as one bucket, which would mean all organic span all acquisition cost and all DNC associated with that Okay makes sense. Thanks Nick.
Thank you. My next question today is coming from Derrick Whitfield from Stifel. Your line is not alive.
Hey.
Thanks, Good morning all.
Perhaps for branded or Nick could you speak to the degree of curtailments assumed in your Q4 guidance and how we should think about your exit rate or early 2020 production rate as these curtailments or alleviated.
But.
We got about 2000 barrels a day forecast in Q4, right I'm looking at our engineering to make sure I'm not lying but [laughter] Ah. So it's about 2000 barrels a day, obviously, the whats tending to happen as we've been turning a lot of wells to sales the fourth quarter will be some already pretty robust and you're getting to the point in which the new wellbores are going to.
Really overwhelms any curtailments that we see I mean, I'd say that in any given quarter. We always have some shut ins offset fracs things like that and we always model. This I think in the third quarter. There were a handful of a higher working interest units that were pretty acute and did take us by surprise a little bit, but we're we're kind of getting towards the tipping point.
Derrick where the amount of activity coming online should overwhelm any any particularly acute shut ins that we see.
Sure as my follow up for you Nick could you speak the average rate of return implied in your Q3 ground game acquisitions, and just give us a senses to how that opportunities that looks at present.
I'll, let the true expert Adam your answer that anywhere from 20% to 50% has gotten what we're looking at I mean, the opportunity sets is continuing to persist since late 2018, and so we've been busy this year picking up I'm certain opportunities that we like allocating it towards the operators in the areas that we like.
And frankly, havent necessarily seen a slowdown so we're we're certainly excited about what we've been able to accomplish in 2019 in order to kind of school up 2020 and going into 2020, Oh like we said, we'll probably a lay off the gas in that regard, but continue to kind of keep our into the ground for opportunities.
Helpful. Thanks for your responses.
But.
Thank you. My next question is coming from Neal Dingmann from Suntrust. Your line is not alive.
Got it all my question for you or Brandon can you talk a little bit you mentioned, Nick about the cash wedge and probably question when you kind of talking about the PD piece I'm wondering.
When you are kind of position essentially starting next year, even as you look into 2021.
Could you talk give us a little more color on the benefits of having that cash wedge or that PDP wedges I look at it and what does the benefits of that's going to be.
Yeah, I mean, Neal I guess I'll, let me start and then what Nick fill Ed I think as you've heard US talk as we've come into this year and through the end of this year. The big Big focus was on on getting the re Fi and the to the second lien stuff dealt with and so having a big as possible cash wedge exiting this year.
It was kind of our goal. So I think you've you've seen our spend do that and as Nick mentioned in his in his remarks. It was really that are or pay down the bank line and and we felt like the returns and the opportunity set the you heard Adam mentioned is.
Remained robust enough that we felt like that was the best use of that capital.
I think the benefits are it really does you know when we when we finalize this process where in the middle of it old reduce take off those handcuffs for being able to return capital to shareholders and so that PDP wedge that cash flow wedge.
Well really be is as large as we could make it as we come into 2020.
And then as I think as Nick mentioned rule and Adam mentioned what kinda.
Throttle that down a little bit and get more into a more even weighted cash flow allocation between that reduction additional acquisitions and returning capital to shareholders. Those three legged stool will be more.
We'll be able to align the lags a little bit more in 2020.
Yeah, and Neil maybe just speaking of this that I think that.
No.
I think it was I can't remember was Phillips or Derrick that asked about the decline rate, which is that the danger that you can get into is that if we if we chase volume growth and we.
We're going to get a lot of volumes out of this capital you spent but really what really matters is the cash you're generating within there, but if if if your whole goal was just to sustain those volumes and keep growing them and ever.
In an ever growing fashion that cash is never going to come.
And importantly, you're not really doing and for the sake of making money are doing and just to grow volumes and that's not really the way, we think about things here and.
And so these opportunities will calm like they have in which we can get a huge cash when fall and certainly we don't want to production.
It's not helpful either for the production to fall off a cliff at any point in time, either but the main goal is to earn a return on capital that is appropriate for our for our cost of capital on those assets and to sweep the down and if the opportunities present themselves over time, we can redeploy that cash flow I do think that we also though were worse.
Smart enough to know that.
You can have too much capital working at any given a one point in time and so that we will spread some of that risk obviously I think.
Anyone is on this phone call today knows what these are doing what you said, they're trying to show capital discipline. This year. So what people may not always understand is that the capital that's being spent in a third quarter in the fourth quarter of 2019 is largely for production that's going to come online in early 2020, and so it's very easy for any company. This.
Look I beat on Capex and my production was in line and it will have very little effect on this year, but you will see that affect eventually in their decline rates and their future production levels. We've taken the opposite approach, which is that we already really had that cash wedge and as people are trying to shed that capital. We're taking those obligations and we will get the benefit from that within a few short months now.
Great details other than just one follow up on maybe brand that your comment on the non consent on that three forks or was there something im just kind of curious what you all side. There was it just purely when you ran the numbers the economics didn't stack up or was there something else there and I want to make sure I'm clear that just by going non consent 30 or so.
Still able to kept keep the bachman maybe you could just mentioned what you were talking about there I.
I guess first I'll first I'll, let Adam Adam answer that question, Yeah, I think well what I mentioned in her comments was.
You know as as you know and hopefully people know by now we get to consent or non consent on a on a well by well gross well by well decision. So we can pick and choose like that so that's kind of why we included that in our comments was our ability to.
Choose yet we think the middle Bakken wells and that unit, we're gonna be meet our hurdle rate and we didn't think the other so we chose one of the other and I think I'll, let Adam comment on maybe what we what we thought we saw in there yeah. We've mentioned it before I mean as much as its the rocks. It's the operator right and then this particular situation Jim and his team are taking a look at this particular.
Operator at this particular area and there are generating great rates of return in the Middle Bakken and just subpar returns in the three forks them. So it's it's pretty easy decision for us, especially when you have the optionality. So in this particular situation. It was the operator, if there was a different operator right next door. It might've been a a consent situation.
Thanks, guys.
Thanks.
Thank you. My next question today is coming from John Mcintosh from Johnson Rice. Your line is not a lot.
Hi, good morning.
Good morning.
I believe somebody issues tied with the curtailments was off some of your partners coming up on their a maximum flaring capacity for the year I'd assume as they move out of this year and into next year do you think that.
Can you expect that production to kind of come on at the beginning of year or Ah.
How are you thinking about that.
Well, we're going to let Jim speak up on ounces, yes. So what we've seen is somebody operators as they've gotten kind of towards the end of the year. They start reaching some of their flare Atlanta. So at the start shutting in some of their wells and those limits reset in February and March can so depending on relief that they see from the gas.
Plant new plants coming online.
There will start to Seasonals curtailments ease as we go into the ended the year early in the quarter or at the latest we'll see them for the end of the first quarter when those where restrictions are coming off.
Okay, Great. That's it for me all my other questions were asked.
Huh.
Thank you. My next question is coming from Jason Wangler from Imperial capital Your line is alive.
Good morning, good morning.
Nick you mentioned on the Capex budget, a bit just curious kind of how you guys you're seeing it kind of set up as you start to look at next year. I think you mentioned kind of you have a pretty good handle for what the rest of this year looks like but you know with all the conversations of folks slowing down and things how do you see that proposal schedule looking as as you look in the early now.
Last year in and kind of how you think about that when you're kind of taken this whole plan together.
Yeah, I mean, I would you say, we've not seen a a slowdown in activity overall, we've certainly seen operators trying to shed their non operated obligations as a way to manage their budget.
Frankly, we haven't we've actually seen an acceleration it is an election year. We all know that there are lots of.
Things being said in the press and things like that.
Bring up nerves and so we've definitely actually seen some activity being brought forward.
Overall I think.
Our our affy activity has been.
Flat to up frankly, I and remember the and fees were receiving here in November and December for wells that are likely in the middle of 2020.
And so.
To be honest with you.
We haven't really seen that at all.
Remember Chase, we got and I think we put the press release, you know wells DNC list at the end of the ended the quarter was a 24. So so we're seeing that pretty stable to up and I think I'm looking at Adam I think the election activity that we've seen so far after the quarter that yes, certainly picked up in October I mean, we consent.
The 80 wells in Q3, we considered a 55.
Tober alone so a lot of that's coming from some of the acquisitions that we mid last year with like the W. energy source in some pretty encouraging development on those properties. So no no slowdown that we can see at least from from inbound <unk> fees and again that should bode bode well for 2020.
And just remember one thing Jason typical operator, 10% to 20% of their budget is non op and other operators. So they got their budget, 20% by shutting their non op not necessarily slowing down their own active drilling campaign right.
Sure No that's a great point I appreciate the color and as you guys kind of kind of go toward this you know a third plan for the free cash flow and you talked about initiating a dividend, obviously, which has been a focus but also the share repurchase I mean can you talk about kind of the allocation that you guys see there.
As far as you know how to be opportunistic and also kind of how to set the dividend up as you go forward to kind to have that part of that plant fit in.
Yeah. This is bahram, let me jump in here.
Our number one.
Goal here is to stay focused and served the entity first as we have done the last couple of years, which means.
The number one focus as these guys have been trying to kind of express.
Is that we want to grow our free cash flow.
And I believe the way.
An entity should be measured is truly measured by their free cash flow growth or lack thereof. So we're going to focus on all of our activities to grow the cash flow free cash flow.
From our operations.
We need to reduce our.
Most expensive debt when I showed up in here, we're spending significantly more.
Per barrel and just interest charges, we have dramatically reduce that.
I will not be satisfied with my accomplishment until we have completely and entirely.
Have retired the 8.5% coupon that.
I like to have this company enjoy.
Interest rates that match.
That of what we can get from our commercial banks and RBL group.
So as we think that had number one focus is to.
Generate significant amount of cash flow free cash flow take a big chunk of that.
And make transactions or to reduce the 8.5% coupon bonds.
Beyond that I know, we have made a commitment that by 2021, we will launch a dividend program in 2020, it would launch as a dividend program.
And I think we can.
I'll start that well within the next 234 weeks five we said we just wanted to take the chance to go through close the transaction both through the mathematics, and we will announce no where are we going to start that no debit into ads for the first quarter there payable in April .
And then finally, we want to have enough capital free cash flow left to take advantage of.
Opportunistic.
Incredibly accretive acquisitions that will help this company to continue to grow is PDP.
And therefore is free cash flow so.
We have reduced as a nikin Brandon pointed out our DNA substantially per barrel, we're going to continue to work on that to make sure that we don't increase DNA here as we grow the production.
Of the company has that barrels.
So all of our goal is to set this company up so that whether if its oil 40 45, we can be used to completely viable we thrive, but 50 and of course, we will make you know.
Lots of money at 60, but we're not going to bank under $60 oil, we're going to we're going to bank on having to be viable in a much tougher environment. So hopefully that gives you. This one third of our cash flow rough and tough going into share buybacks and dividend one third reducing.
Got it or most expensive debt and one third of our cash free cash flow going into.
Additional acquisitions that is basically the that's sort of.
I'm now direction that we want to go with some latitude to make the best decisions for the best interest of the entity hopefully that gives you the answer you need.
It does thank you for the color.
No I said.
Thank you as a reminder, ladies and gentlemen at star one to be placed the question Q1 moment. Please what we pull for further questions.
Our next question is coming from Jeff Grampp from Northland Capital markets. Your line is now live.
Yes.
I was curious I noticed a well cost took a little step down here in Threeq. He was just hoping you guys could talk on that that day, maybe mix of of operator or or geographic concentration within the basin or did you guys see kind of more across the board and cost reductions and just kind of your sense for how we should be thinking about that trend it into a into year end in 2020.
Yeah, Hey, Jeff This is Adam it.
It's a mix between operator and completion methodology and so I think you know depending on the mix of fees that were seeing at any given time, you're going to see that I kinda fluctuate a little bit.
In October again, we saw a 7.7.
Kind of as our average that being said I think it probably job kind of bounced between kind of 7.7 and eight.
Okay, great great helpful and my follow up I was curious how you guys see kind of oil mix trending here as the base and kind of catches up a gas processing do you guys anticipate you know a meaningful change if at all in regards to your sales oil mix or do you guys kind of feel that both the oil and gas is being can.
Strained kind of kind of ratably.
Jeff It's Nick I did a little bit of work on this you know I went through the step downs and flaring restrictions in North Dakota, and that alone should theoretically at about 350 basis points to the gas mix in general and.
Even though we feel like our oil production is probably been constrained a little bit here by by the curtailments relative to the gas.
You know it would foot was sort of where our where our trend has gone I think our should stay relatively stable as we go for that certainly how we internally forecast setting and the engineering systems.
But we will see another small step down in flaring at the end of next year.
And so it's possible as these systems come online that we see a little bit more gas turned to sales now I say that but.
I said this on the last call and I'll repeat it which is that.
Candidly, we have a lot of wells that are producing that may well on the oil on the oil percentage be are being held back by a constraint so they're producing but they still maybe you can strain to some degree so again I want a long way of saying I don't think that it's going to change materially for us it up.
Corporate level.
But I do think it'll be interesting to see as these constraints ease.
I would manifest itself.
Got you I appreciate the detail thanks.
Hi, Jeff.
Thank you we reached end of our question answer session on us to turn the floor back over to management for any further of closing comments.
Alright, Thanks, Kevin and thanks, everyone for your participation in the call and your interest in northern oil and gas. Please take note that we have a busy schedule. The next several months are tending various conferences around the country and some of those details are included in our press release. So we look forward to seeing somebody on our travels and plan on talking with you again next quarter haven't you can go.
The replay information. Thanks, everybody certainly that does conclude today's teleconference to access to replay. Please dial 8776, 606.53 or 20161 to seven for one five and then to access I'd number 1369 604 zero. We thank you for your participation.